Design, supply component issues may be hurting iPhone 5 production

Foxconn may be having supply issues tied to new iPhone 5 components and Apple's stringent production specifications

Stringent iPhone 5 production specifications established by Apple and supply issues with new components like the Lightning port and larger screen could be responsible for Foxconn's delays of the handset, analysts said on Wednesday.

Foxconn, a Chinese contract manufacturer that assembles Apple devices, on Wednesday said it was shipping fewer iPhones due to design and production issues, according to a news story in the Wall Street Journal on Wednesday.

Foxconn chairman Terry Gou said iPhone demand was strong, but that the company couldn't meet Apple's requests to supply more phones, according to the news story. He did not provide further details on the design and production issues causing the delays. However, analysts said that an overwhelming demand for the iPhone 5 and supply chain issues could be hurting Foxconn's timely production of the device.

Apple sold over five million iPhone 5 units in the first three days after the new smartphone started shipping on Sept. 21. The phones have been in short supply since, and Apple's online store currently reflects a three- to four-week wait for the device.

Foxconn runs a tight ship, and it's more than likely that the iPhone shipment delays out of the factory are likely related to supplies of "components and Apple's control related to a component," said Jim McGregor, principal analyst at Tirias Research.

Apple selects component suppliers, and sometimes multiple vendors supply a single component to Foxconn. Foxconn's delays could result from a lack of consistency among parts supplied by different suppliers.

"That leaves a contract manufacturer with very limited options," McGregor said.

Sterne Agee analyst Shaw Wu in early October pointed to a limited supply of components like in-cell touchscreens as a reason for iPhone shortages. Wu also pointed out that Apple has set stringent demands related to iPhone production.

"Our sources indicate that iPhone 5 is not easy to build with [Apple's] very high standards where it aims to produce each model to be an exact replica where variance is measured in microns," Wu wrote in a research note on Oct. 9.

Foxconn may be having trouble adapting the production line and getting parts for many of the new features in the iPhone 5, said Dan Olds, principal analyst at Gabriel Consulting Group. New features include the Lightning port and casing.

"It's very hard to scale up any supply chain to produce these kinds of numbers of technical products in such a short time period," Olds said.

Roger Kay, president of Endpoint Technologies Associates, agreed, saying that there have also been issues with the finish and polishing of the iPhone.

"I would say in general that the production quality requirements have grown more stringent over time as the expectation -- Apple's and end users' -- have risen. Consistently high quality production is difficult," Kay said.

Labor unrest and high turnover rates in Chinese factories may have contributed to iPhone 5 production delays, analysts said.

But the iPhone 5 supply issue is more visible now because of the high competition in the smartphone market, Gabriel Consulting's Olds said. In the past, people would wait for an iPhone, but that's not the case anymore.

"Android phones are much more competitive and I think that some of the folks looking at a four- to five-week wait for an iPhone 5 might take a hard look at giving an Android device a shot," he said.

Agam Shah covers PCs, tablets, servers, chips and semiconductors for IDG News Service. Follow Agam on Twitter at @agamsh. Agam's e-mail address is agam_shah@idg.com

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Agam Shah

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